Industry Week in Review – May 11, 2012

On May 7th, the U.S. House of Representatives’ Budget Committee passed a plan to circumvent across-the-board cuts in January and reverse billions in reductions that were made last fall.  The Republican-led effort aims to restore cuts in the defense budget that were approved as part of the Budget Control Act of 2011. 

The plan is accompanied by two bills, from both the House Armed Services Committee and the Defense Appropriations Subcommittee, to spend the additional funds.  Rep. Paul Ryan (R-Wis) commented, “In our view, we shouldn’t be taking more from hardworking Americans to fix Washington’s mistakes.  Instead, we should be solving the problem with structural reforms to our entitlement programs… [there is] strong bipartisan agreement that the sequester is a bad policy.”

However, on May 10th, the Pentagon immediately rejected both spending plans, which will likely be dead on arrival when the Democrat-controlled Senate finalizes its military spending recommendations.  Defense Secretary Leon Panetta commented, “The Department of Defense, and I believe the administration, are not going to support additional funds that come at the expense of other critical national security priorities…if members [of Congress] try to restore their favorite programs without regard to an overall strategy, the cuts will have to come from areas that could impact overall readiness.”

Big Movers

Aeroflex Holding Corp. (Down 23.2%) – Shares traded down this week after the company issued Q4 2012 guidance below Wall Street estimates.  The company reported that it expects net sales to be between $180 million and $195 million and adjusted EBITDA between $41 million and $51 million.  Analysts were previously expecting the company to report revenues of $202 million and EBITDA of $58 million.

GeoEye, Inc. (Down 16.1%) – Shares traded down this week after DigitalGlobe’s Board of Directors rejected GeoEye’s proposal to acquire the company for $17.00 / share.  Later in the week, a secondary drop-off occurred when Macquarie analysts downgraded GeoEye’s stock to “Neutral” from “Outperform.”

Wesco Aircraft Holdings Inc. (Down 10.4%) Shares traded down this week after announcing earnings results on Monday, in which it reported earnings-per-share of $0.22, missing analysts’ consensus estimates by $0.03.  However, the company did report revenue that was up 3.5% as compared to the same quarter last year.

Relevant Transactions

GTCR announced that it has acquired CAMP Systems, a provider of maintenance management, flight scheduling, inventory control, and engine control trend monitoring solutions for $675 million.  The auction process was orchestrated by Credit Suisse AG, who also drew bids from Bain Capital and Welsh Carson, Anderson & Stowe for the Warburg Pincus-backed company.  According to sources close to the deal, the company was generating EBITDA ~$45 million.  The deal reportedly closed on April 7th.

Kratos Defense & Security Solutions, Inc. has agreed to acquire Composite Engineering, a provider of ballistic missile target systems, augmentation and payload equipment, and launch solutions, for $155 million.  The company primarily provides miniature jet targets for the U.S. Air Force and U.S. Navy. According to Kratos, the company earned ~$94 million in revenues in 2011, up 25% over 2010, and has a qualified pipeline in excess of $1 billion.  The deal includes a $20 million component of Kratos stock.

General Dynamics C4 Systems has agreed to acquire IPWireless, a provider of LTE mobile broadcast solutions for government and public safety customers, as well as integrated mobile broadcast solutions for 3G mobile data offload applications, for an undisclosed purchase price.  General Dynamics consummated the transaction to tap into the “fast current of growth” in the rapidly expanding 3G and 4G wireless market.  The acquisition will also provide General Dynamics with a technological and pricing edge in future upgrades to secure communications networks programs for U.S. military and civilian customers.  IPWireless reportedly has ~90 employees and expects to generate between $65 million and $75 million of revenue this year.

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